What happens to 1st, when 2nd forecloses?

Hello Everyone,

I am looking for some help here on a foreclosure notice issued by the lender on the second mortgage. It is larger than the first, but the first is not foreclosing (yet). If the 2nd does foreclose and sell at auction, what happens to the 1st? Does that need to be paid off first (as soon as funds are received for the 2nd), since it is in the 1st position?
If so, how does this effect the discount I could ask for from the lender of the 2nd in a short sale situation? Any advice or help is greatly appreciated!


Come on. I know someone with more experience than me and the poster has the answer to this question.

Bovine ,believe it or not some people here are truly uneducated in Most of what we talk about here.Answersto questions are much more appreciated than ridicule.

I would think to work with the 1st lien. The 1st will normally foreclosure before the second finishes… Not always true… but that would be my advice… but don’t listen to just me… never done one like that


I did some googling and found out even if the second forecloses the first position must be paid first, after back taxes if any. In your situation the first is extremly secure in getting their money. The second too will get a large percent of what its owed. Your best bet is to try and short the second since they have the something to lose. I think it will be difficult to get them to short since once the first is taken care of, for a small amount, all leftovers will be theirs. Remember this all depends on the how much is owed and what the as-is value of the property is.

I have been the 1st position lein holder on a property when the 2nd foreclosed. The property was located in Michigan where there is a 6-month redemption period. When the sale took place at the court house, I was not paid immediately even though I was the first lein holder. The 2nd didn’t actually satisfy my lein until the redemption period ended. But eventually, the 2nd did need to payoff the first.

  • Short Sale Mike

I also have a 2nd foreclosing that is twice as much as the 1st.
1st - American General - $23,700 payoff
2nd - American Servicing Co (ASC) ~$48,000
ARP - maybe $75k & repairs - ~10k

What is the best way to approach the 2nd? I have heard they most often will let just bid at auction and satisfy the 1st since the total payoff is greater.

This property is in the hood and they only possible way I would SS was if the 2nd took $1-2k! Has anyone seen a situtation similiar to this where the 2nd took the $1-2k when they hold twice as much as the 1st?


One way to approach it is this:

ARV $75,000
x .70
Rehab -10,000 (I will assume this number includes carrying costs, closing, etc).
Ttl Offer $42,500 (this would be my upper limit, not where I start my offer)
1st - 23,700
Offer $18,800 (again, upper limit)

Also, I would certainly not start with a full payoff of the 1st as my first offer. I also would try to compare this to distressed comps (foreclosed homes, rehabs, etc.) in your area, in hopes to justify the total offer to the 2nd lienholder, and convince them to take the $18,800 offer for their $48,000 payoff.

Hope this helps.